Last Updated on 10/07/2023
On July 7th, 2023, the Turkish government made significant changes to the tax landscape in Turkey by implementing increases of taxes in Turkey. These adjustments aimed to address various economic challenges and funding government initiatives. The new tax rates affected individuals, businesses, and specific industries. However, it would result in serious implications for the economy.
Taxes in Turkey hikes in July 2023
On July 7, Turkey awoke to a fresh round of substantial tax increases, with the value-added tax (VAT) rising by 2%. According to economists, this year’s government will get an additional 30 billion liras in revenue thanks to the VAT increase.
Increase in VAT, Consumer loan taxes, and other fees
According to the Turkish Gazette, the Turkish government increased the VAT rate relative to products and services from 18% to 20%. Yet, the rate relative to necessities like diapers, detergent, and toilet paper rose from 8% to 20%. President Recep Tayyip Erdogan signed several decisions that became effective immediately. It includes the rise in Bank Insurance and Transaction Tax (BSMV) relative to consumer loans from 10% to 15%.
One of the judgments in the gazette revealed that the registration charge for mobile phones coming from overseas increased by 228%. It jumped to TL 20,000 ($765.74) from the prior TL 6,091. Moreover, the government decided to eliminate withholding taxes in Turkey from dividend payments on own shares bought by firms figuring on the Borsa Istanbul Stock Exchange (BIST).
A significant budget recovery is required
The actions followed the introduction of a draft law in parliament earlier this week. It aims to raise the business taxes in Turkey from 20% to 25% in order to pay for the country’s recovery after two significant earthquakes that rocked it in February. Over 50,000 people died in the February quakes in southern Turkey, which also caused the destruction of thousands of structures tand millions of people to become homeless. Government officials, business organizations, and economists estimate that reconstruction might cost more than $100 billion.
The government committed to construct more than 600,000 homes for the earthquake victims, including 319,000 that would be provided in a single year. Therefore, the draft law calls for the increase of a number of taxes in Turkey. It includes a jump in the corporation tax rate for banks and financial institutions from the current 25% to 30%. Moreover, vehicles to be registered at the end of the year will pay additional motor vehicle taxes. The one-time extra payment will equal the motor vehicle tax accrued for 2023, according to the proposed law. Additionally, the Treasury-managed portion of the Turkish lira deposit account scheme would be transferred to the central bank under the proposed legislation.
Inflation in Turkey
The annual inflation fell below 40% in June thanks to many reasons. The fiscal measures including a corporate tax increase, as well as the minimum wage and other compensation increases, contributed to this raise. Yet, it is to rise again in the months to come. Experts estimate the new tax measures to increase overall inflation by 1 to 1.2 %. Following years of economic unconventionality, Erdogan has made a wider policy U-turn. We saw this with the central bank’s increase in interest rates last month. Moreover, he promised to tighten policy even further in an effort to control inflation. According to economists, the higher VAT rate relative to goods and services will raise state revenue by about 30 billion Turkish Lira.
The Turkish government’s decision to increase tax rates in Turkey in 2023 was due to the need to address budgetary shortfalls, promote social welfare, and support sustainable economic development. By implementing higher tax rates on high-income individuals and specific industries, the government aimed to generate additional revenue and create a fairer tax system.
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